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November’s Budget is the Time to Address IR35 Rumours

The fast approaching Autumn Budget on 22nd November presents the Chancellor, Phillip Hammond, with a timely opportunity to clarify the much debated and speculated future of IR35 in the private sector.

The pressure on Mr Hammond to address the ongoing uncertainty with regards to further changes to the off-payroll working rules is quite rightly mounting, as HMRC and the Government remain predictably tight-lipped about their plans.

Unfortunately, our sector knows the consequences of being left in the dark about IR35 only too well, not to mention the problems encountered when changes are inevitably rushed through.

April’s controversial changes to IR35 in the public sector offer the perfect insight into how reform should not be enforced. Chaos and confusion surrounded the run up to the 6th April, which continued in the months after. Contractors rightly held reservations as to whether public sector clients and agencies were up to the task of making accurate IR35 decisions.  And in many respects, the dust has only just settled.

Neither Mr Hammond nor HMRC have openly acknowledged the true impact recent IR35 reform has had, not only on UK contracting, but recruiting and the public sector too. The Government’s silence, combined with HMRC’s outright denial that changes have affected our sector will not have helped mend the pair’s already fractured relationship with the UK’s 2million freelancers and contractors.

But that isn’t to say the Chancellor can’t start to make amends by publicly addressing private sector IR35 rumours in his Budget speech. It’s better late than never, and clarity and honesty would help contractors, recruiters and the private sector itself prepare should reform be extended.

Despite the very clear challenges following public sector reform, Qdos Contractor research has revealed that 63% of contractors predominantly working in IT and technology roles are confident that speculated changes in the private sector could be handled.

This might come as a surprise. But it’s perhaps more an indication of contractors’ resilience and confidence in their clients and recruitment agencies to make better IR35 decisions, rather than their faith in HMRC to get things right with the implementation second time round.

And contractors are right to be confident, given that potentially incoming changes can in fact be managed. Should the responsibility for setting IR35 status be passed on to the client with recruitment agencies in tow, the sector must learn from previous mistakes.

Clients and agencies now know that blanket determinations and below-par IR35 contract assessments simply won’t do. Reality has dawned and end-engagers understand they must actively take steps to make well-informed employment status decisions – and ones which are assisted by unbiased, expert IR35 contract reviews.

Confidence will no doubt have been taken from the public sector, with many contractors being forced inside IR35 or into umbrella arrangements. That said, many of the initial blanket determinations have been reversed and thousands of contractors continue to work outside IR35 via Qdos’ Status Review system, put in place with a number of agencies and their end clients to manage the rules. [EDIT 07/11/17 – this paragraph previously indicated that the sector was coping and that the many contractors were being placed outside of IR35 which misrepresented the reality for the majority]

However, should reform be introduced to the private sector, it must be implemented properly. It’s unacceptable for HMRC to architect such fundamental changes to contracting, only for them to wash their hands with it when difficulty inevitably arises. Put simply, if they’re adamant on extending reform then they must see it through, and roll out changes in a more structured way.

Regardless of whether contractors feel potential incoming changes could be coped with, previous research indicates that the issue sits as 48% of contractors’ top concern. This is clearly a situation which must be handled carefully.

Given that HMRC has only recently started policing changes in the public sector, one would imagine the Government might want to give themselves as much time to prepare for private sector changes, and properly assess the impact on the public sector before making any announcements.

That said, the Budget has delivered many unexpected moments in the past, so prepare for the unexpected. In the unlikely case that reform is off the cards, then Mr Hammond has a responsibility to announce this.

In the coming weeks the Chancellor will be polishing what is arguably the most eagerly anticipated business speech in the calendar. It would be to his, the Government’s, the economy’s and indeed contractors’ detriment if he ignored the elephant in the room and failed to shed much needed light on further IR35 reform.

By Qdos Contractor


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4 thoughts on “November’s Budget is the Time to Address IR35 Rumours”

  1. neville almond

    The rules for IR35 are pretty clear but unenforced (and almost unenforcable) by HMRC. What HMRC are doing is a smart way of enforcing compliance. Somthing did/does need to change the beneficial tax regime of low PAYE high dividends, otherwise our country will struggle with a continually lowering tax revenue, affecting services like the NHS. I write this as an ex-contractor (1987-2003) who now sees the risk on non-compliance simply too risky for your personal financial health.

  2. Soprano

    Why did something “need to change”? The projected (and totally unproven) “loss” to the Exchequer is £400m p.a. As I said, this figure is unproven – they cannot substantiate it. Are you saying that individuals who are in no why like employees, and enjoy none of the benefits of employees, need to pony up more tax because the government cannot control its spending?

    Also, spare us the drivel about the NHS. This is not and has not been funded from NICs for ages. The government does not earmark funds for the NHS from this pool; it spends it as it likes.

    So, please do tell how the NHS, now faced with higher costs of taking on either permies with all their attendant costs and lack of flexibility, or having to stump up higher day rates to remunerate contractors no longer interested in public sector work, is benefiting?

    BTW to put into perspective how much “avoidance” as a whole contributes to the ugh… “tax gap”… here:

    Pissing in the ocean.

    If you’re implying that the country will struggle financially due to the contractor model, you’re either deluded or dishonest.

    • neville almond

      “Something needed to change” as pre-IR35 contractors could avoid NI unlike the majority of the population on PAYE. This is unfair. Or do you think its fair?

      I do agree IR35 was a heavy handed instrument in imposing both EMPE & EMPR elements of NI, therefore – potentially – doubling the amount of NI a contractor would pay compared to Employees.

      The subject in your third paragraph is irrelevant, and the content in your 5th & 6th para’s are getting petulant and abusive so I’ll ignore those.

      The lack of NI from the contractor community could be significant. On assumptions of 2m contractors, an avergae of 50k PA (covering a higher and lower earner average), then 20% of that multiple is around £20bn. That is not insignificant, and one (of many) taxation gaps that need to be plugged.

      Maybe you are happy escaping NI, letting other (often lower earners) pay more, and not letting it bother your social conscience. Or maybe you will think it through and change your ways? From the way you express yourself, I doubt it………

      • Cathy

        Neville you may indeed be correct in your calculation of NI however you have failed to take into account VAT collected at a rate of up to 20% and the addition of corporation tax.

        You have also not taken into account the entire contracting industry and the potential effect this could have on, accountants, recruitment companies etc etc .

        I do believe you have taken a very simplistic view.

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